Sustainable Development

I would like to begin with a quote from Judge Richard Posner:
More important, if there is a fixed percentage of geniuses, there may also be a fixed percentage of evil geniuses, including potential terrorists.

I really find it funy when such a renowned mind seriously talks about a fixed percentage of evil geniuses.

On to the main course now. Since I work for the Earth Institute under Jeff Sachs, a huge proponent of "sustainable development", and since I also work for two other professors who largely ignore this notion (Miguel and Linden), and since my most influential professor (Xavier Sala-i-Martin) is very dismissive of Sachs' view regarding this issue, I thought it might be a worthwhile point of discussion.

From the Becker-Posner Blog we have an excerpt of Gary Becker's column on sustainable development, posted on September 18:

The very large increase in oil and natural gas prices in the past couple of years has led to renewed concern about whether world economic development is "sustainable". This term is typically not defined carefully, but sustainability requires that improvements in the living standards of the present generation should also be attainable by future generations. The concern is usually that because fossil fuels and other non-renewable resources are used to produce current economic development, future generations will have much greater difficulty in achieving equally high living standards. A related concern is that environmental damage due to global warming and other types of pollution will create major economic and some health problems for future generations.

In a simple arithmetical sense, the use of some non-renewable resources in current production clearly reduces the stock remaining for future generations. But the relevant concept for development purposes is not the physical supply of fossil fuels and other non-renewable resources, but the economic cost of gaining access to them. Over most of the past 100 years, fossil fuel prices relative to other prices declined rather than increased, even though significant amounts of these fuels were used to help develop many nations. The reason for the decline in relative prices is that new discoveries and better methods of getting at known sources of oil, gas, and coal led to growing rather than falling stocks of economically accessible reserves.

Exactly 140 years ago a great British economist, W. Stanley Jevons, argued (see The Coal Question, 1865) that the world was running out of coal, which he claimed in a few decades would make further economic progress impossible for England and other nations. The book is a high quality statistical study, but even Jevons failed to anticipate the use of oil, natural gas, and nuclear power, the discovery of additional sources of coal, and the extent of improvements in methods of extracting coal and other fuels from the ground.

Of course, what happened in the past is no certain guide to the future. But a 2005 study by Cambridge Economic Research Associates, a prestigious consulting company in the energy field, estimates that known reserves of liquid fuels (oil and gas) will continue to increase at least in the near term future, especially if the high prices of these fuels during the past year continue. Their report discusses the growing importance of drilling for oil in deep rather than shallow water, and other technological advances in extracting more cheaply the world’s stock of oil and natural gas both under land and under water.

Even if one discounts this and other studies, and believes that the relevant reserves of fossil fuels will decline in the future, the supply of energy sources would greatly increase if nuclear power were more extensively used. That power too is based on a limited resource, uranium, but the supply of uranium is vast relative to its use in generating nuclear power. Nuclear power cannot only generate electricity, but it can also be used instead of oil or gas to produce the hydrogen used in hydrogen fuel cells. Although it is too early to tell, hydrogen cells could replace the internal combustion engine in cars, trucks, and busses sometime in the next few decades. Nuclear power would also help reduce greenhouse gases, such as CO2, and other types of pollution since it is a "clean" fuel (see the May 2005 discussion of nuclear power in our blog).

However, I believe that the most serious deficiency in the usually discussions of "sustainability" is that it should refer to total wellbeing, not simply to what is measured by national income statistics. Even if fossil fuels become increasingly scarce and expensive, and even with further declines in the environment, improvements in health will continue to advance overall measures of wellbeing. Life expectancy has grown enormously during the past half century in virtually all countries, including the poorest ones. Indeed, the typical length of life has generally grown faster in poorer than richer countries as they benefited from medical and other advances in health knowledge produced by the rich nations. The Aids epidemic has set back several African nations, but the increase in life expectancy has been impressive even in most of Africa.

A recent study (see Becker, Philipson, and Soares, "The Quantity and Quality of Life and the Evolution of World Inequality”" American Economic Review, March 2005) shows how to combine improvement in life expectancy with traditional measures of the growth in GDP to measure what we call the growth in "full" income. We demonstrate that the growth in full income since 1965 has been much faster than the growth in material income in essentially all countries, but especially in less developed nations. A better measure of full income that adjusts not only for the growth in life expectancy, but also for changes in the environment, and for the great advance in the mental and physical health of those living, especially of the elderly, almost surely grew at an even faster rate.

It is highly unlikely that the pace of medical progress will slow down in the coming decades. Indeed, I believe just the opposite is true, that medical progress is likely to accelerate. My belief is based on the magnificent advances in knowledge of the genetic structure of humans and other mammals, and the development of biomarkers, such as the PSA test for prostate cancer, and the blood test for BRAC 1 and BRAC2 gene mutations that greatly raise the risk of breast cancer. Experts on mortality are predicting huge increases during the next 50 years in the number of people who live beyond seventy, eighty, and even ninety in reasonably good health.

Slowing down and reversing global warming may require reductions in the world's use of fossil fuels, and economically relevant reserves of non-renewable resources could decline in the future rather than increase. These forces combined might lower GDP per capita in many countries-although I doubt it- but progress in medical knowledge will produce substantial advances in the world's full income. So just as the per capita wellbeing of present generations is much higher than that of our parents and grandparents, so the wellbeing of the generations of our children and grandchildren are very likely to be much higher than ours (setting aside the damage from possible highly destructive wars and terrorism).

This is why I believe that while the sustainable development literature asks important questions, the analysis has been inadequate and overly alarmist. Most of the discussion takes a mechanical view of changes in the stock of the stock of non-renewable resources, pays insufficient attention to technological advances in the economy, and gives much too little weight to the enormous advances in health that are highly likely to continue in the future, and possibly even accelerate.

Thoughts?